Author Topic: zenith  (Read 18569 times)

valuecfa

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zenith
« on: January 29, 2010, 04:54:52 PM »
Looks like somebody is back into zenith


Viking

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Re: zenith
« Reply #1 on: January 29, 2010, 10:44:33 PM »
Looks like FFH added 1.2 million shares in Dec (at $30) and just under 1 million in Jan (at $29.70). This is in addition to the 991,000 they held at the end of Q3 (up from 554,000 at end of Q2).

Results reported today looked pretty ugly (underwriting loss and falling dividend and interest income). Outlook for future is bleak (business will continue to shrink and underwriting will likely remain over 100 until economy improves which is going to be when???).

Shareholder equity = $28.25/share.

Shares (ZNT) closed today at $27.90  Let's see what Mr. Market thinks about results on Monday...

For those who have not followed FFH for long, FFH owned a significant portion of ZNT a few years back and sold much of that stake for a nice gain when they needed cash. FFH understands this company very well and perhaps this is simply another situation where they are re-establishing postions in stuff they had to sell in the 7 lean years...??? Anyone have an update on HUB???
 

StubbleJumper

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Re: zenith
« Reply #2 on: January 30, 2010, 06:25:33 AM »
Can somebody refresh my memory?  Did FFH have a "stand-still" agreement with Zenith?  Has that agreement now expired? 

I'm wondering whether this might be the next subsidiary for them....

Uccmal

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Re: zenith
« Reply #3 on: January 31, 2010, 06:47:58 AM »
HI Viking, where are you getting the purchase numbers from?

Going from 10% ownership to 100% is a mighty leap.  However, They certainly know Zenith very well so it may be a good company to buy.  This type of move appeals to me much more than acquisitions of companies they have no prior relationship with, particularly in the insurance sector.   
GARP tending toward value

Viking

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Re: zenith
« Reply #4 on: January 31, 2010, 10:30:23 AM »
Al, I got the numbers from going to the company's investor site. Go to page 13 for a summary of FFH most recent purchases. Open the most recent filing (Jan 29 SC13D).

http://www.thezenith.com/investors/investorinfo/sec/page36124.html


Uccmal

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Re: zenith
« Reply #5 on: January 31, 2010, 05:10:27 PM »
Viking, Thanks.. It wasn't on the Nasdaq site yet.  a.
GARP tending toward value

valuecfa

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Re: zenith
« Reply #6 on: January 31, 2010, 06:03:41 PM »
Can somebody refresh my memory?  Did FFH have a "stand-still" agreement with Zenith?  Has that agreement now expired? 

I'm wondering whether this might be the next subsidiary for them....

Yeah, its already expired. It would have shown up in item 6 of the filing had it still been in effect. I believe it expired in 2006. As for a new sub, keep in mind the size of zenith, the current size of the FFH ownership stake, and the current multiple to book of znt. In other words, I wouldn't go out and buy call options just yet, but who knows.

StubbleJumper

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Re: zenith
« Reply #7 on: January 31, 2010, 06:14:31 PM »
Can somebody refresh my memory?  Did FFH have a "stand-still" agreement with Zenith?  Has that agreement now expired? 

I'm wondering whether this might be the next subsidiary for them....

Yeah, its already expired. It would have shown up in item 6 of the filing had it still been in effect. I believe it expired in 2006. As for a new sub, keep in mind the size of zenith, the current size of the FFH ownership stake, and the current multiple to book of znt. In other words, I wouldn't go out and buy call options just yet, but who knows.

I'm getting a market cap of about $1B, of which FFH already possesses 10%?   So the remaining 90% would cost them $1b*90%*130%, assuming a similar premium to NB and ORH. 

They just issued a nice chunk of preferreds.  ORH and C&F have just a silly dividend capacity.....

Don't write it off!

SJ

Cardboard

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Re: zenith
« Reply #8 on: February 01, 2010, 08:24:25 AM »
It would be a great fit for Fairfax:

1- Long tail policies meaning a lot of float to invest.
2- They know management very well and the culture around disciplined underwriting is very similar.
3- They know this line of business very well (workers compensation): ORH, TIG.
4- Essentially debt free.

The real missing element for ZNT to be an attractive business is their lack of investment skills, almost everything is in bonds and treasuries. In the hands of Hamblin Watsa, the portfolio would look quite different.

The issues I see for a deal:

1- Are they ready to sell?
2- Fairfax would need around $2 billion in cash and investments at holdco since they have mentioned a few times the desire to keep around $1 billion. We are not there even with the issuance of these recent preferreds. Share swaps with shareholders does not seem like their thing based on recent history: NB, ORH, Advent so we need to see cash. Not listed on the NYSE is also an issue for such option.
3- Over 50% of their business is in California. Too much for Fairfax's taste?

My guess is that they will continue accummulating the shares on the open market at these prices for quite a while. If the price don't move and cash starts to pile up at Fairfax holdco, then I could see a move.

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StubbleJumper

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Re: zenith
« Reply #9 on: February 01, 2010, 10:38:40 AM »
I'm not sure that financial resources are such a constraint (I made this same argument last summer when we were speculating on the potential of buying ORH).  My take on FFH's cash situation is:

Current Hold-co cash

Hold-co cash as at Sept 30: $2,340 (from Q3 report)

Less: ORH payments ~-$1,000
        Dividends ~-250
        Redeem A&B preferreds ~-150
        Corporate Overhead ~-30

Add: Issue C preferreds ~+250
       Issue E preferreds ~+200

Hold-co Cash as of today (before subsidiary dividends): ~$1,360m




Potential Subsidiary Dividends

Beyond current cash at the holding company level, there is significant dividend capacity at the operating subsidiaries.  In particular, last year's A/R showed that the net-written : statutory-surplus ratio was 0.7 for ORH and 0.8 for C&F.  Those two subs could issue a dividend large enough to take them to a 1.0 ratio without the regulators batting an eye.  Conservatively speaking FFH could pull dividends out of the subs of the following magnitude:

ORH $500
C&F $250
NB ???

Total: $750m+


In conclusion, if you take the holdco cash and augment it with subsidiary dividends, it is not inconceivable that FFH could have a war-chest of $2.1B at the hold-co level.  That's roughly enough to buy ZNT and still have adequate liquidity.

SJ